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Small business tax accountant Melbourne

When considering whether or not to start a new business, there are a variety of taxation obligations which need to be considered. Most of the income generated by your business would be classed as assessable income – this means that it’s subject to tax and you will need to declare it on your tax return.

There are tax deductions which you can claim for most expenses incurred whilst running your business, but exceptions exist. You are not able to claim tax deductions for domestic or private purposes. Fines, entertainment, and some other specific expenses are also excluded.

Depending on the structure of your business, the rules for income and deduction will vary. Also taken into account is whether or not you hold/trade stock, and the nature of your expenses and income.

What to include as assessable income

Assessable income is any income that is subject to tax. Generally, to calculate the assessable income for your business, you are required to include any amounts you earn or receive in the ordinary course of operating your business, such as by providing services or selling stock.

Usually, you are also required to include the following:
– Commission income
– Amounts originating in isolated transactions outside the ordinary running of your business, where you intended to make a profit
– Amounts which exceed their written value if selling depreciating assets
– Compensation, including worker’s compensation or payments for trading stock losses, contract cancellations, or business interruptions
– Excise brewery refund
– Wine equalisation tax producer rebate
– Fuel tax credits, cleaner fuels grant and product stewardship (oil) benefit
– Franking credits (credits from company tax already paid), dividends on business investments
– Incentive payments, such as cash payment for a lease
– Grants, such as an amount received under the Apprenticeship Incentives Program
– If you are an Australian tax resident, income earned outside Australia
– Payments for selling know-how
– Interest on business investments and interest on early payment or overpayment of tax
– Hire changes and lease payments
– Net capital gains made from selling capital assets such as buildings or land
– Awards or prizes for your business, such as a money prize for winning a business competition in your region
– Personal services income (PSI) if PSI rules apply to you
– Recovered bad debts which you have received a tax deduction for
– Royalties, such as payments received for authorising other entities to use your intellectual property
– Rental income from properties owned by your business
– The value of goods you take from your business’s trading stock for your own personal use
– Subsidies for running a business
– The market value of transactions not involving money, including barter transactions
– The value of stock on hand at the year’s end if its value is greater than at the start of the year.

As exemplified by this list, you usually need to declare your gross proceeds and earnings, not just profit.

Amounts you should exclude when determining your assessable income

Some amounts, including the following, are not assessable. So you don’t need to include these when declaring your assessable income:
– Prizes that are not related to your business
– Amounts earned from a hobby
– Gifts or amounts given to you
– Goods and services tax (GST) collected by your business
– Any borrowed money
– Gambling or betting wins, unless your business is a gambling or betting business
– Payouts from personal income protection insurance policies (in most cases)

Record keeping and tax

As a business owner, you are legally required to keep complete and accurate records of all assessable income and any deductions you claim. Making misleading or false statements in these records or reports can result in the ATO doing the following:
– Applying penalties
– Determining your income based on other information, such as industry benchmarks, and issuing an amended tax assessment
– Prosecuting you in court

Keeping records for your business

You are required to keep records of all your business transactions, and these records must be stored by you in full for five years after the date on which the records were prepared or the relevant transaction completed.

These records are required in order to evaluate any expense claim you may make. Failing to keep records may result in an expense claim being denied or reduced, and can even result in penalties being applied by the ATO.

The ATO has created a specific Record Keeping Evaluation Tool, which is hosted on their website. You can use this tool to identify what records you need to keep, and how to assess and/or improve your record keeping.

As well as those listed above, there are some other records which may need to be kept depending on the nature of your business. These income tax records also may need to be kept each financial year:
– Stocktake records
– Debtors and creditors lists
– Records of depreciating assets
– Records of any private use of business assets or purchases
– Records of assets for the purposes of assessing capital gains tax
– Motor vehicle expenses (includes logbooks)

All your financial records can be stored either in electronic or hard-copy form. But they all must be written in plain English and readily accessible. Bookkeepers often specialise in setting up book keeping systems for business records such as those required to be kept for tax purposes.

Accounting methods

The amount you should include as your assessable income depends on whether you account for income on a cash or accruals basis.

Cash basis

This refers to payments received during the year and does not require you to know when the work was done. If you are accounting on a cash basis, your assessable income only includes income which you have actually received during the income year.

Accruals basis

Accrual refers to income which has been earned during the year, even if the payment for this has not yet been received. If you account on an accruals basis, you need to include everything you earned during the income year, even if you are yet to receive payment.

Some people confuse these two assessable income accounting methods with the cash and non-cash goods and services (GST) accounting methods. Assessable income refers solely to income and has nothing to do with GST.

Concessions for small businesses

If your business has an aggregated annual turnover of less than $2 million, you may be able to receive certain concessions which reduce your taxable income. Aggregated annual turnover refers to the total sales made by your business and associated businesses during the financial year.

Foreign income

As an Australian tax resident, you must include any income you have earned from foreign sources as part of your assessable income. Even if your income was already taxed in its country of origin, you must report it to the ATO. If your income has already been taxed, it may be eligible for Australian tax exemptions such as the foreign income tax offset.

You are required to convert foreign deductions and income into Australian dollars at the exchange rate which was current at the time the income or deductions were earned. You may also use an average exchange rate to convert your income as long as that rate is similar to the rate which applied at the time the income was earned.

Personal services income

Businesses involved in consulting or contracting may earn a type of income called personal service income (PSI). For these businesses, PSI tax rules apply and may alter the amounts included as assessable income, as well as eligible deductions.
The purpose of the PSI rules is to ensure that people earning PSI are taxed in a way which is comparable to employees performing similar roles to them. This ensures that they do not claim excessive deductions.

What is PSI?

PSI can be described as income which is generated through the application of your personal skills or efforts. Examples where PSI may be earned include:
– By professional practitioners operating a sole practice
– By consultants who provide personal expertise
– By professional entertainers and sportspeople
– Under contracts which are principally for your services or labour.

PSI generally does not include income earned by:
– Giving permission to use legal property
– Selling or supplying goods
– Through a business structure, such as a company or firm as opposed to a sole practitioner or trader working under a contract
– Using an asset, such as a truck, to generate income (these assets are known as income-producing assets)

Sole traders

Sole traders are subject to PSI rules which limit deductions they are able to claim. Examples of expenses where deductions are limited include:
– Mortgage interest, rent, rates, land tax on personal residences
– Car expenses for a spouse
– Super payments and wages for associates

Partnerships, companies, or trusts

These types of businesses are also limited in the deductions they can claim. If you operate one of these businesses, its income (minus some reductions) will be treated as your personal income, so you must report it on your tax return. In addition, your business will be subject to pay as you go (PAYG) obligations on your personal income.

Crowdfunding

Crowdfunding is a rapidly evolving industry and is subject to changing taxation regulations due to its growing popularity and value. Crowdfunding has different tax implications for individuals involved at different stages of the crowdfunding process.

Generally, there are three parties involved in crowdfunding arrangements:
– The promoter, who initiates the venture or project for which the funds are being sought
– The intermediary, which is the organisation or platform providing the crowdfunding services. These are usually websites
– Funders, individuals and entities who contribute money to the project

Each party can potentially have tax obligations as part of a crowdfunding arrangement.
If you happen to receive or earn money through crowdfunding, it may be assessed as taxable income. This means that you need to declare any money received via crowdfunding arrangements on your tax return.

If you are a small business owner it is highly advisable you utilise a qualified business accountant Melbourne, like Kingston and Knight Accountants to monitor your accounts. Contact us today on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

Small business tax accountant

Accounting Tax Deductions for Small Businesses

What You Can Claim and When

It is important you are aware of accounting tax deductions for small businesses if you run a business yourself. As a small business owner, you are able to claim a tax deduction for most business related expenses, so long as they are incurred during the running of your business and they relate directly to the earning of assessable income.

Generally, you are able to claim operating expenses for each income year (such as supplies and wages). Capital expenses, such as those to do with equipment, machinery, and buildings, are claimed over a longer time period. Expenses which meet these criteria are referred to as allowable deductions. You can claim these deductions when submitting your yearly tax return.

What you CAN Claim

As a business owner, you are only allowed to claim expenses which relate directly to your ability to earn assessable income.

For example, if you purchase/use an asset for both private and business purposes, you are only allowed to claim a tax deduction on the business-related portion of this expense. If an item or asset is only used for part of the year, you are required to reflect this when claiming any deduction.

What you CANNOT Claim

You are unable to claim any deduction for goods and services tax expenses if your business is eligible to claim these expenses as a GST credit.

Also, you are unable to claim:
• Domestic or private expenses, such as personal items or childcare fees
• Expenses which relate to your non-taxable income, such as income earned from a hobby
• Specifically non-deductible expenses, such as fines and entertainment.

Expenses you can Claim in the Year they are Incurred

These are generally referred to as ‘revenue expenses’. These are the expenses incurred during the everyday running of your business.

You are able to claim a tax deduction on most revenue expenses in the year they are incurred.

Examples include:
• Bank fees and charges
• Sponsorship and advertising costs
• Bad debts
• Business vehicle expenses
• Business travel expenses
• Clothing expenses (uniforms etc)
• Depreciating assets with a cost of less than $1000 if you are a small business
• Electricity expenses
• Education, professional or technical qualification expenses
• Home office expenses if your home is used as a business premises
• Fringe benefits
• Interest on money borrowed for employer super contributions, tax obligations, or to produce assessable income
• Legal expenses, such as those incurred through obtaining legal advice, borrowing money, defending future earnings or discharging a mortgage
• Luxury car lease expenses
• Losses from a previous year
• Parking fees
• Costs for running a business website, such as internet service provider fees, site maintenance, content updates etc
• Stationary expenses
• Phone expenses
• Public relations expenses
• Accountant and registered tax agent fees
• Rates on business premises
• Costs for the maintenance and repair of income-producing property
• Small-value items which cost $100 or less
• Wages, salaries, bonuses, and allowances
• Costs for outdoor clothing and equipment if your business activities require outdoor work
• Subscription costs for professional journals, business information services, newspapers and magazines
• Super contributions for employees and some contractors
• Tender costs, even when a tender is unsuccessful
• Union dues and periodical fees for professional or trade associations
• Transport and freight expenses
• Trading stock, including delivery charges
• Water expenses on business premises
• Tax related expenses such as having a bookkeeper prepare records, attending an ATO audit, appealing or objecting to your assessment, and obtaining tax advice for your business.

Expenses you can Claim Over Time

These are referred to as ‘capital expenses’.

Generally, a capital expense is either:

• An expense which is associated with establishing, enlarging, replacing, or improving the structure of your business
• The cost of an asset which has a relatively long lifespan (generally longer than one income year).

Usually, you are unable to claim the total capital expense in the year you paid for it. You generally make claims for any decline in value which that asset experiences each year.

You are able to ‘pool’ these capital assets and claim depreciation for the entire pool. For small businesses with assets worth less than $1000, the total amount can be claimed in the year it is incurred.

Capital assets usually depreciate in value over the time you use them. They can also be known as depreciating assets, and can include:
• Electrical tools
• Computers
• Plant and equipment
• Motor vehicles
• Furniture, curtains and carpet
• Fixtures and improvements on land, such as fences and buildings.

A set of rules applies across the variety of depreciating assets and capital expenditure. In summary, the life expectancy of an asset (in years) usually determines the number of years you must apportion the cost.

Some assets are excepted from these depreciation rules, usually these are assets which apply to construction costs relating to capital works. Capital works can include:
• Structural improvements
• Improvements to land, such as fences and buildings
• Environment protection earthworks

You are allowed to claim these capital works expenses at 4% per year over 25 years, or 2.5% per year for 40 years.

Other capital expenses

There are other business-related capital expenses for which you can claim deductions, as long as these expenses aren’t covered by any other part of tax law. An example could be the cost of setting up or dismantling a business. This is referred to as black hole expenditure. Black hole expenditure can be claimed over five years.

When is an expense is incurred?

An expense is generally incurred whenever you have a current legal obligation to pay for goods or services. Generally, an invoice is not necessary for an expense to have been incurred.

Claiming expenses paid in advance

These expenses are covered by a different set of rules. For small businesses (with an annual turnover of less than $2 million), the small business prepayments concession can be used to claim deductions on expenses prepaid for goods to be received in full within 12 months. This also applies if the 12-month period includes the following income year.

If you are a small business owner it is highly advisable you utilise a qualified Melbourne business accountant, like Kingston and Knight Accountants to monitor your accounts. Contact us today on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

Small Business Entity Tax Concessions

Simplified stock trading rules for small business

Small businesses are able to use a simplified set of trading stock rules as an alternative to those that apply to larger businesses.

If you choose to apply the simplified rules to your small business, you will only need to perform a stocktake, or account for any changes in the value of your stock under certain circumstances.

What is trading stock?

Trading stock can be anything which your business purchases, produces, acquires, or manufactures for the purpose of sale or exchange with customers. Livestock are included in this definition, but not beasts of burden or work animals used in a non-primary production setting.

The following are examples of things NOT included in the ATO’s definition of trading stock:
• DVDs owned by a DVD rental business that are used to earn income by rental or hire, rather than sale, manufacture, or exchange
• Supplies of spare parts being stored for maintenance or repairs of plant and equipment
• Consumable items used in the manufacture of trading stock, such as sandpaper and cleaning agents
• Timber, fruit, and standing or growing crops – only the harvested, picked, or felled form of these count as trading stock.

Valuation of trading stock

You are generally required to perform a stocktake to determine the value of any trading stock you have on hand at the end of the income year. This involves sorting through each physical item of stock and assigning a value to each of these items.

When assigning a value to items of stock, you can use one of these three methods to determine a value:– Market selling value: Under this method, you are not allowed to use a reduced valuation if you are forced to sell stock. Market selling value means the current value of your stock as it would sell in the normal operation of your business.– Cost price: A cost price is the monetary value of everything involved with bringing a stock item into existence. This can include customs duties, freight, materials and labour involved in manufacturing, and purchase price.– Replacement value: This is the price of a similar item that you could reasonable use to replace your trading stock in the buying market on the last day of an income year.

You are able to change which method you use for performing stock valuation year to year, and you can even use different valuation methods for different stock items. The value of stock on hand at the beginning of the next income year must be equal to the value of stock on hand at the end of the last income year.

If you have applied the simplified stock trading rules to your business, you may be able to estimate the value of your stock rather than physically counting each item and performing a manual valuation.

You can use an estimate so long as there is a difference of $5000 or less between the actual value of your trading stock at the beginning of the income year and your reasonable estimate of the value of stock on hand at the end of the income year.

Under the simplified rules, you are required to either value your stock, or estimate the value of your stock each year, but you do not need to notify the ATO.

If you are entitled to a GST credit, you are not required to include GST in the value of your stock.

Immediate deductions for prepaid expenses

As a small business entity, you are able to claim immediate deductions on prepaid expenses so long as the payment involved covers a period of 12 months or less ending in the next income year.

There are a set of prepayment rules which determine how much you are able to claim as prepaid expenses in each income year. So long as these expenses meet certain requirements, you may be able to choose how you treat them in your tax return.

The following information relates to the general prepayment rules and special prepayment rules which apply for small businesses from 2007-08 onwards.

When these rules apply

The prepayment rules apply when you have incurred expenses for goods or services that were not fully provided in the same income year in which the expense was incurred.

An example of such an expense may be an advertisement paid for in a newspaper or magazine, set to run every fortnight for six months:
In this case, the prepayment rules will apply if you pay for the advertising in March, and it is set to appear from April 1 through to September 30 in the following income year.

If you pay for the advertising in July, and it is set to appear from August 1 through to January 31 of the same income year, the rules do not apply as the services have been provided within the same income year that the expense was incurred.

How prepaid expenses should be treated

You are generally required by the prepayment rules to separate deductions for prepaid expenses of $1000 or more over the income years in which the corresponding goods or services were provided. However, if you are a small business, you can choose to deduct the prepaid expenses immediately.

Two-year amendment period for reviewing an assessment

This applies from the date the ATO issued your assessment. Your tax return, or that of your business, is generally accepted at face value and is not subject to further adjustment. Your return may be subject to verification and review by the ATO, even after you have received a notice of assessment.

If a review shows inaccuracies or ambiguities in deductions, income, entitlements etc, the ATO will attempt to amend your assessment within a time period called the ‘period of review’. This amendment period is the time in which you can lodge objections to a review, and provide evidence to support your original tax return. In some circumstances, the Commissioner will accept late objections so long as they are applicable and/or relevant.

Speak to the Melbourne business accountant experts in small business entity tax concessions today from Kingston & Knight on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

Kingston & Knight, along with our partners are specialists in all areas of Self-Managed Super Funds (SMSF), from managing annual audits, compliance paperwork, tax returns to investment strategy and advice.

Our Melbourne based team holds a membership with CPA Australia and have SMSF personnel who are committed to combining their expertise and assurance in assisting anyone who is considering setting up their own SMSF.

Self Managed Super Fund – Setting up an SMSF

When you’re finally ready to set up a self-managed super fund, there are a number of important steps to take to ensure that it is being set up correctly and that all legal guidelines are being adhered to. By taking the time to create and consider your own SMSF plan, you can safeguard your fund’s eligibility for tax concessions and for receiving contributions. Being organised and having a plan also makes your fund easier to manage in the long term, allowing you to avoid being overwhelmed by tasks and responsibilities.

Before creating a detailed SMSF plan customised to your own needs, it might be helpful to have a basic overview of some of the key steps involved.

Setting Up – Talk to the Professionals

Establishing a self-managed super fund is no easy task. More often than not, it is worth considering whether you need the assistance of one or a number of professionals. Retaining professionals that guide you through your SMSF establishment will increase your chances of securing a well-managed, financially efficient, fund. If you do choose to retain a professional just remember that, regardless of their professional input, it is still you that is ultimately responsible for making sure everything is done correctly.

Types of Professionals

Whilst none of the following SMSF professionals are required by law, they all have the capacity to help ensure that you are adhering to relevant legal standards. More than this, they are equipped with the financial knowledge necessary to maximize your fund’s economic benefit.

SMSF Accountant

An SMSF Accountant is a financial professional whose job it is to inspect, secure, or keep financial accounts. When setting up a self-managed super fund, a SMSF accountant can certify that your fund’s accounts are sufficiently arranged in accordance with your SMSF plan. They may also assist in preparing both their annual fiscal position and operating statements.

Tax Agent

Tax agents are experts in tax law, and are a smart choice for anyone without the necessary skills or resources to guarantee that all of their SMSF decisions are in accordance with relevant legal standards. Tax agents are capable of drawing and lodging your fund’s annual return, supporting you in your communications with the Australian Taxation Office, and providing general advice regarding tax law and your fund. Before retaining a tax agent, though, it is advised that you refer to the Tax Practitioners Board and ascertain whether your professional of choice is registered.

Fund Administrator

Fund administrators are professionals in the administration of your self-managed super fund. The fund administrator’s primary role is to act as an overseer of the daily tasks and management of your SMSF. They guide you in the fulfillment of your general SMSF duties, ensuring that you meet your reporting and administrative commitments.

Financial Advisor

Financial advisors often play a significant role in organising and administering the investments and investment strategies of SMSFs. Arranging investments with secure and smart returns is a complex and exerting task that calls for a great deal of skill and experience if it is to be successful. The support of a financial advisor is a good idea for those that do not have a strong financial background or are not familiar with the various methods of investing. Financial advisors are also helpful in identifying the insurance products that will be most useful for you. Kingston & Knight have professional Melbourne experts that ensure that the financial advice provided is right for you. Contact us today on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

Appointing an Approved SMSF Auditor

Auditing your fund is an essential step in the long-term management of your self-managed super fund. It is important to note here that whilst hiring the professionals, appointing an approved SMSF auditor is a requirement. The auditor is in charge of ensuring that your SMSF is in compliance with any relevant laws and certifying that your financial statements are accurate. Following the rules and appointing an auditor ensures that you achieve any tax concessions on your investment income to which you are entitled.

An approved SMSF auditor means that your fund’s auditor must be officially registered with the Australian Securities and Investments Commission (ASIC). If your auditor is registered, you will need to access their SMSF auditor number. Once you have their number, you are required to disclose it on your annual return. When appointing an auditor you must also keep in mind that they have to be financially indifferent to your fund. In other words, you may not retain an auditor that has any financial interest in your SMSF. In this vein, the auditor is also disallowed from being someone with whom any members or trustees of the fund have a personal relationship or close business relationship. Kingston & Knight have the professionals for your Self Managed Super Fund and are registered with ASIC. Contact us now on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

Individual Tax Return

What is an individual tax return?

Every year, individuals are required to declare their income in a tax return. For most people, much of this information is provided to the Australian Tax Office by their employers and related financial institutions, but there are some details which must be recorded manually.

When completing an individual tax return, you will need to ensure that the information listed is complete and accurate, regardless of whether or not it has been pre-filled by an employer.

There are some specific types of income which must be declared each year.

Employment Income

This is money which you have received as a result of your engagement in paid work. Regardless of how many jobs you have, and whether they are part-time, full-time, or casual, you need to ensure that all of your combined employment income is listed on your tax return each year.

Some allowances, namely those for travel or overtime meals paid under an industrial award, agreement, or law, do not have to be included on a tax return so long as they meet ALL of the following requirements:
– It does not exceed the reasonable allowance amount set by the Commissioner.
– You spent the entire amount on tax-deductible expenses.
– The payment was not shown on your payment summary.

Lump sum payments

Commonly, there are two types of lump sum payments. If you leave a job, you may receive a lump sum payment which meets the value of unused long service or annual leave. Or, you may receive a lump sum payment in arrears, for money which your employer owes you from an earlier income year.

Both types of lump sum payments must be assessed and reported in the year which you receive them.

Super contributions and reportable fringe benefits

Other income related to your employment, such as fringe benefits and super contributions, must be reported so that the government can work out if you are eligible to receive tax offsets or other government benefits. You do not have to pay tax on these items.

Reportable fringe benefits are things given to you by your employer, such as a cheap loan, free health insurance, or a car which you can use for private purposes.

Reportable super contributions are those made by your employer on your behalf.

Government Payments, Annuities, and Super Pensions

If you received income from pensions paid to you as part of a super income stream, government payments, or annuities, you must declare them in your tax return.

Pensions

For tax purposes, a pension includes regular payments made as part of a super income stream. This does not include government pensions like the age pension.
Generally, these pensions are payed out by:
– Australian super funds, retirement savings account (RSA) providers, or life insurance companies
– Funds established for the benefit of state, territory, or Commonwealth employees and their dependents. For example, the Public Sector Superannuation Scheme and the Commonwealth Superannuation Scheme
– Parties as a result of the death of another person, such as the death benefit income stream

What you need to declare

Super income stream payments are made up of different components. The following components need to be included as part of your tax return:
– Any part of your benefit on which tax has already been paid by the fund, these are known as taxed elements
– Any untaxed elements, which are the parts of your benefit still taxable

Some components may be tax free. You do not need to include tax free components on your tax return.

Annuities

For tax purposes, an annuity is generally described as a regular series of payments made to you by a life insurance provider in exchange for a lump sum payment. Usually, annuities are made up of both tax free and taxable components.

Government payments

When preparing your tax return, you are required to declare payments made to you by the Government – including the age pension, Austudy, youth allowance, Newstart, and carer payments.

Some types of government payment are exempt from income tax, but must still be declared on your tax return. This information will then be used to determine your eligibility for various government benefits or tax offsets.

Investment income

Generally, you must declare investment income regardless of whether it is paid to you directly or made through distributions from a partnership such as a trust or share club.

Interest

As an Australian resident, you must declare interest as income if you are receiving it. Income from interest includes:
– Interest credited or paid to you by the ATO
– Interest earned from accounts held with financial institutions
– Interest earned from a child’s savings account if you operated or opened an account for a child and any funds in the account legally belong to you
– Interest from foreign sources (although you may be entitled to a tax offset for tax paid on this income)
– Life insurance bonuses (though you may be entitled to receive an offset equal to thirty percent of bonus amounts included as part of your income).

Dividends

Dividends can be paid to you in the form of money or property, including shares. If you are credited or paid with shares, whichever company issues you the shares is required to provide you with a statement indicating if the shares qualify as dividends.

Some dividends have a franking credit, or imputation attached – this must also be declared on your tax return. If you have been paid any dividends which have been franked, you’ll usually receive a franking tax offset.

Rent

Any rent-related payments you receive or become entitled to must be declared in full on your tax return.

Examples of rent-related payments can include:
– Booking or letting fees
– Rental bond money if you are entitled to retain it should a tenant default on rent or damage your rental property
– Insurance payouts made in compensation for lost rent
– Recoupment or reimbursement made for deductible expenditure

If you are receiving goods or services instead of money for rent purposes, you must declare the monetary value of these goods or services.

Co-ownership

If you own a property jointly with another person or persons, or if you have an interest in a partnership which relates to a rental property business, you must include your share of expenses and rent on your tax return.

Managed investment trusts

If you receive any credits or income from a trust investment, you must show these on your tax return.

Capital gains

For tax purposes, a capital gain is any difference between the cost of an asset and the amount of income you received from it. Capital gains can also be received from managed funds or unit trusts, who may distribute capital gains to you. Capital gains are to be treated as part of your total income, and are not taxed separately.

Partnership, Business, and Trust Income

If you operate a business, you must declare its net income on your tax return.

Income received by you as an individual running a business

You must report any income earned from your business on your tax return. A separate tax return for your business is not required. Your own tax return can include a business schedule for reporting your business income.

Partnership income

Business partnerships don’t pay tax on their income, but they must lodge a partnership tax return which declares all deductible expenses and income earned. This must show how net income or loss has been shared between the partners.

Each partner is required to declare their share of the partnership’s net income or loss on their own tax return, even if they have not received any income yet.

Each partner owns a proportion of any capital gains made by the partnership. Capital gains are attributed to individual partners, and not the partnership itself for tax purposes.

Trust income

Trustees are required to lodge a tax return for any trusts they are involved in. Like partnerships, trusts are not regarded as separate taxable entities.

Trust beneficiaries must declare the amount of trust income that they are entitled to as part of their personal tax return. Even if a beneficiary has not actually received income, they must report their stake in the trust.

The only exception to this is that trust distributions do not need to be declared if family trust distribution tax has been paid already.

Foreign Income

As an Australian resident, you will be taxed for your global income. This means that you are required to declare foreign income on your Australian tax return.
Foreign income usually includes:
– Foreign employment income
– Foreign annuities and pensions
– Foreign investment income
– Capital gains made on overseas assets
– Foreign business income

Your foreign income may also be taxed in the country of origin, so it could be subject to double taxation. Australia has a system of exemptions and a credit designed to overcome this, and has obtained tax agreements with more than 40 countries.

If you are not an Australian resident, you will only be taxed on your income which originates in Australia. So you usually won’t have to declare foreign income on your tax return.

Crowdfunding

An increasingly popular means of fund raising, crowdfunding involves the use of social media and other internet services to raise funds for a venture or project. Crowdfunding arrangements are subject to rapidly reviewed and updated taxation regulations owing to its recent popularity and rapid growth.

For tax purposes, you must determine if any money received from crowdfunding is income or subject to GST. If it counts as income, it must be reported on your tax return.

Other Income

Insurance payments and compensation for lost wages or salary
You are required to declare any amount received for lost wages or salary under an income protection policy, or accident or illness insurance policy/workers compensation scheme.

If you have made a claim of personal injury, and have agreed on a settlement or had a court rule in your favour, you may be compensated in the form of periodic payments or a lump sum. These payments are tax-fee, so long as some conditions are met.

Rights to shares or discounted shares under employee share schemes
If you are a participant in an employee share scheme (ESS) and receive discounted shares, you are required to declare this discount when you lodge your tax return.

Your discount will be evaluated based on the type of scheme you are involved in as well as personal circumstances.

Awards and prizes
You may have won a lottery or prize draw run by an investment body. If you have, you must declare the value of any prize or benefits on your tax return. Prizes might include low-interest loans, cars, holidays, or cash.

Prizes won in ordinary lotteries, such as raffles and lotto draws, do not need to be declared on your tax return.
Game show contestants are only required to declare prizes won if they regularly receive fees for appearances.

If you happen to dispose of or sell an asset that was acquired through winning a lottery, you may have made a capital gain. Any capital gains must be declared on your tax return.

Forensic Accounting

Kingston & Knight provides expert knowledge, investigation and assistance to help you protect yourself, your business and your finances from fraudulent or illegal activities.

Forensic accounting is the speciality practice area of accountancy that describes engagements that result from actual or anticipated disputes or litigation. “Forensic” means “suitable for use in a court of law”, and it is to that standard and potential outcome that our forensic accountants strive to work. If you suspect, or foresee a need for our investigative services, enquire now.

Forensic Accountant role – Melbourne

What Does a Forensic Accountant Do?

A forensic accountant sees the oft-neglected overlap between law and finance, and translates this connection into clear and meaningful advice or assistance for their client.

This advice and/or assistance manifests itself in a number of manners including, but certainly not limited to:

Lawyer support (litigation support) – are regularly retained by lawyers. Rather than simply considering a typical accountant, even one that specializes in the financial issue at dispute, a lawyer will go to a forensic accountant for their ability to translate financial data into information relevant to the courtroom.

Corporate Investigation – A corporate entity will often retain a forensic accountant for the purpose of an internal investigation into, for example, embezzlement. Whilst a typical accountant could easily be retained to consider financial reports and files they don’t specialise in the investigation of dubious financial indicators.

Calculation of Damages – After a case has been tried, a forensic accountant may be retained to advise on the degree and nature of just and appropriate damages. Whilst an arbitrator might be valuable in their judgment of what is fair, they usually do not have the relevant depth of financial knowledge to apply this fair judgment to damages calculation. A typical accountant may have knowledge of finance and accounts, but this knowledge might not extend to the application of a fair legal outcome.

The “Middle Section”
A helpful way to think of the forensic accountant’s role is to picture a ven diagram, in which two separate circles overlap to create a middle section – these two circles are ‘Law’ and ‘Finance’. A client facing a financial-legal dispute may wish to hire a lawyer and a typical accountant to deal respectively with the ‘Law’ and ‘Finance’ circles, but a lawyer and an accountant might miss the crucial overlap between their two fields – the “middle section” – a lawyer will simply consider the law, and an accountant will consider finance. This is where the forensic accountant comes in, they sit within the crucial overlap between law and finance, at the intersection between these two fields, constantly bringing them together and translating them into each other. In this way, they may see what those in other vocations cannot, allowing them to investigate and discover key gaps or data points in present or pending litigation.

The forensic accountant’s unique ability to investigate the intersection between finance and law is one of the primary reasons for their regular employment, and is certainly essential to bear in mind when considering whether to retain one.

As professional investigators, forensic accountants have honed skills in recognizing suspicious financial data points or gaps in information. This is not solely accounted for by their in-depth knowledge of finance and accounts, but can be attributed to a skill set that necessarily develops from their familiarity with dubious financial undertakings. Often, the forensic accountant’s investigate ability becomes almost intuitive in its accuracy and recognition.

When approaching an investigation, though, forensic accountants do have more to rely on than their experience and familiarity with these financial ecosystems. They are also adept at using software and complex electronic networks that allow them to efficiently discover pieces of information relevant to the requirements any given case or retainer.

Forensic Accountant Melbourne

What is Forensic Accounting?

Forensic accounting, sometimes referred to as financial forensics, is a specialty best understood when broken up into its components: “forensic” and “accounting”. “Forensic”, in this instance, means “suitable to a court of law”. That is, it is a process suitable to the requirements of a legal procedure in terms of both analysis and depth. “Accounting” refers to a broad body of knowledge concerned with – among other things – recording and keeping financial transactions and accounts. Forensic accounting, then, is a field in accounting that examines and considers financial information for the primary purpose of legal investigation.

Because forensic accountants regularly engage in in-depth investigation and analysis, this is a field that values attention to detail. As part of our role, forensic accountants must consider detailed financial information and translate this information into comprehensive reports or presentations. These reports may then be used in a court of law to support trial evidence, for instance, or to advise a private individual in advance of a legal dispute. It is this detailed nature of Kingston Knights Forensic Accountant Melbourne’s work, as well as our keen ability to ascertain substance over form, that makes us so crucial in the resolution of financial concerns or disputes.

Consulting a Forensic Accountant

Since the GFC, the role of forensic accounting has gained increasing significance for the global financial stage. With a greater awareness of dubious financial undertakings, businesses and individuals are turning to the courts for fiscal security. Relevant civil and criminal court proceedings might use forensic accountants to provide insight into such things as:

The role of the Forensic Accountant Melbourne, however, isn’t limited to the courts. Clients may seek advice from a forensic accountant before making the decision as to whether civil or criminal action is necessary or even warranted. As these are important legal decisions, a forensic accountant may be called upon to ensure accuracy and certainty in advance of legal disputes.

Who Consults a Forensic Accountant Melbourne?

Here are some examples of those who often retain our forensic accounting services:

The clientele for forensic accounting is as broad as the role itself. Extending in and out of court, the legal and financial acumen of a forensic accountant may be called upon by those in a range of positions or vocations. Forensic accountants may be retained by members of the legal community for authoritative support in a court investigation, or by an individual in pursuit of secure financial advice prior to potential legal proceedings.

Financial report audit

Planning financial report

Understanding the business
When conducting an SMSF audit, the auditor should obtain a basic understanding of the SMSF which includes the:

• Nature of its administration and investments;
• Trust structure
• Parties involved in the trusteeship and management of the SMSF; and
• Related parties of the members and trustees.

Gaining this preliminary understanding of the SMSF will allow the auditor to review the trust deed and verify whether:

• The trust deed was executed properly.
• The SMSF was established with a individual trustees, a corporate trustee, or to pay a pension.
• The SMSF has current trustees who are appropriately empowered.
• The SMSF’s trust deed complies with the SISR and SISA and any changes to these.
• The powers to pay benefits and accept contributions in the form permitted by the SISR and SISA.

SMSFs are usually small entities, whose members are related and control is managed by only a few individuals at most. There is often little opportunity to implement adequate segregation of duties under these circumstances. As a result, the auditor can assess an SMSF’s compliance framework and control environment as ineffective. In this case, the auditor will not be able to rely on internal controls as an effective means of reducing substantive testing.

In response to these conditions, an auditor may be required to design and implement further audit procedures which are entirely or primarily substantive procedures.
In order to comply with ASA 250, an SMSF auditor is required to consider whether the fund has committed any previous breaches of the SISR or SISA, and whether there are any unresolved issues with the ATO (including outstanding correspondence). Any matters identified as such will have an impact on the auditor’s assessment of the compliance framework, as well as the overall risk assessment.
Services organisations may be used to provide investment management services and other services to SMSFs.

Should this be the case, the auditor will need to assess the impact of these services on identified risks.

Identification of risk

There are several major areas of risk which must be considered when auditing an SMSF, including:
• Contributions (ensuring that they have been correctly calculated, possess the correct preservation status, are allocated to members during the appropriate period and are treated correctly in regards to tax purposes);
• Investments (ensuring that they exist and are valued correctly, as well as being appropriately timed, represented, and owned);
• Benefits (ensuring that the calculation of amounts paid is correct and in accordance with the trust deed in order to ensure that no unrecorded benefits are payable);
• Revenue (ensuring that revenue is being properly accounted in accordance with accounting policies).

Communication with third parties

Auditors may be required to communicate with a number of third parties in order to understand the business and obtain sufficient audit evidence. These third parties may include fund administrators, actuaries, and investment managers. The timing of this communication should be coordinated so that all background information can be assessed before the nature, timing, and extent of audit procedures are to be determined. At the year’s end, information such as confirmation of investments will be required.

Planning memorandum

There are several specific SMSF details which should also be documented in audit plans. Responses to identified risks may depend on the following factors:

• The complexity and size of the SMSF.
• Whether the SMSF was a complying fund in previous years.
• Whether the SMSF is an accumulation fund or a defined benefit fund.
• The level of trustee knowledge and involvement in the SMSF’s operations.
• Whether or not the SMSF is self-administered or administered by a service organisation.
• The range and nature of investments held by the SMSF and whether they are managed internally or externally.
• Whether or not service auditor’s reports are available for services provided by third-party service organisations.
• Whether or not the employer-sponsor is also a client of the auditor or the firm hired to prepare the accounts.
• The potential for compliance issues, and the confirmation of any previous compliance issues.
• The due date for lodgement with the ATO of the SMSF’s Annual Return.

Audit plans require annual review to ensure that they are updated to reflect current circumstances relating to the SMSF and any changes in legislation which could affect the SMSF.

Reporting

Financial information to be prepared/basis for preparation
Many SMSFs are required to prepare an operating statement and a statement of financial position.
It is recommended that this statement be included by a trustee, though this is not mandatory. There are minimum mandatory financial statement disclosure requirements (APES 205):
• A statement of specific purpose which financial statements have been prepared for;
• A statement detailing that financial statements are special purposes statements;
• A statement of the accounting policies used in the preparation and presentation of the financial statements.

About Kingston Knight

Kingston & Knight Accountants is a Melbourne-based accounting/tax advisory firm with over 40 years collective experience working with individual clients, small, and medium sized businesses. We are passionate about bringing the best outcomes for out clients.